Potential of shale-gas boom is hard to nail down

Right now, beneath your feet, Ohio has oil and gas deposits so vast that they could transform the economy.

Dan Gearino, The Columbus Dispatch

Right now, beneath your feet, Ohio has oil and gas deposits so vast that they could transform the economy.

But there are many reasons for skepticism. These shale-based resources are difficult to reach and expensive to extract, and they come with a host of concerns about air and water pollution.

Ohio leaders are in the early stages of figuring out how to navigate this complicated situation. Meanwhile, oil and gas producers are making bets that the obstacles can be overcome.

Last week, some big numbers became part of the discussion: $15?billion to $20 billion. That’s the range of income that Chesapeake Energy said it expects to generate from drilling in the Utica shale in eastern Ohio.

For some perspective, Ohio had $665 million worth of oil and gas production in 2009, the most-recent data available. Chesapeake’s potential income, even if spread over several decades, would be a huge increase in the state’s production.

And that’s just one company. Several other big players, such as Devon Energy, Anadarko Petroleum Corp. and Chevron Corp., also are making plans in the state.

“This is a whole new game now,” said Larry Wickstrom, Ohio’s state geologist.

In his 28 years working for the state, he has never seen anything like the activity related to the Utica shale.

“The big thing underlying all this that everyone needs to understand is that these shale plays across the U.S. and the world are really a major paradigm shift for the oil and gas industry,” he said.

The announcement by Oklahoma-based Chesapeake was notable because it was the first of its kind related to the Utica shale in Ohio.

Ohioans have heard a lot about shale gas — resources locked in rock formations far below the earth’s surface — but most of that talk has been about the Marcellus shale. The Marcellus formation already has yielded returns in the southeastern part of Ohio, Pennsylvania and nearby states. Oil and gas companies can access the deposits because of a technique known as hydraulic fracturing, or fracking.

The Utica shale is several thousand feet below the Marcellus layer. Most important for Ohio, the Utica deposit stretches across the eastern half of the state, including the Columbus area, a much larger footprint than the Marcellus shale.

Unlike the Marcellus, the Utica is an untapped and largely unknown resource. This summer, Chesapeake became the first company to complete a well in Ohio that reached the Utica, Wickstrom said. The company used information from this well and other testing to make its forecast about potential income.

Big unknowns

“There is a great deal of potential, but it’s really hard to determine how big it will be,” said Jerry Jordan, chairman of Knox Energy in Columbus.

His company owns about 500 oil and gas wells in central Ohio. If the Utica lives up to its promise, Knox is one of many local businesses that stand to share in the windfall because of existing lease rights.

Jordan, 75, comes from an oil-business family, and he has been in the business all of his life. That experience, along with his training in geology, makes him skeptical when big numbers get thrown around.

There also is the delicate issue of how the state’s oil and gas industry, mostly made up of family-owned businesses, will deal with a situation that will be largely driven by corporate giants. Local companies have soldiered through decades of modest incomes, and most of them can’t afford to spend millions of dollars on a single well to the Utica, much less a series of wells. This could mean that most profits likely will flow to shareholders outside the state.

“There are definitely mixed feelings for the little guys in Ohio,” Jordan said.

Looking more broadly, his view is clearly defined. In an industry prone to boom-and-bust cycles, there is nothing better than the beginning of a potential boom.

“If you’re in this business, this is what you’re in the business for,” he said.

Air and water concerns

The greatest unknown about shale gas may be on the regulatory front. The U.S. Environmental Protection Agency is studying the air and water pollution generated by these new extraction methods. Environmental groups have raised concerns about the disposal of the vast amount of fluid waste that is a byproduct of fracking.

“We’re really pretty far from where we need to be in order for this activity to take place in Ohio, to protect our natural resources and community health,” said Ellen Mee, director of environmental-health policy for the Ohio Environmental Council, an advocacy group.

She urges state leaders to take a close look at the development of shale-gas drilling in other states, such as reports about dirty air in neighborhoods near the installations. For example, New York state regulators are studying some of the environmental issues, largely in response to an uproar from fracking critics. Mee thinks the same kind of scrutiny would be helpful in Ohio.

The issue is a firestorm for just about any group that attempts to do an independent study. For example, critics have pounced on the Energy Information Administration, part of the U.S. Department of Energy, for its forecasts that show a dramatic increase in domestic gas production over the next decade. A New York Times report late last month cited internal emails from the agency suggesting that there is much more doubt about shale gas than has been publicly portrayed. In turn, the report got a strong pushback from the agency and industry groups.

On Friday, Gov. John Kasich told the Columbus Metropolitan Club that shale gas is “the revolution that’s come to Ohio.” He said the state needs to “answer the environmental concerns that are out there” and that “Ohio can be the model for how to get this right.”

Environmentalists will be pleased to hear that last part, but they remain skeptical.

In the meantime, get ready for more announcements like the one from Chesapeake as other companies enter the fray, and more talk about environmental rules. This story is just beginning.